Ford is testing a new way of selling cars.
In the past, auto makers have cranked out cars with random colors, trim packages, and drivetrain options, then set them on dealers lots’ where customers could choose among them.
Now Ford will emphasize making a car to each customer’s custom order, placed online, and delivering it within eight weeks.
The new approach will slash Ford’s and dealers’ inventory costs and minimize the risk of making odd cars that no one wants and that dealers must discount to get rid of, the company said in announcing the shift.
The strategy will allow dealers to maintain 50 to 60 days’ worth of inventory on their lots instead of the 75-day supply common now, Ford CEO James Farley said in a call with analysts last month that was cited by The Wall Street Journal.
Farley wants the new custom orders to account for a quarter of sales in the future, compared to virtually none before 2020.
Dealers have reported greater profit margins this year, because the global shortage of computer chips (see related story) has reduced inventory on the lots, cutting carrying costs.
Analysts applauded the new method’s efficiency but also warned that the company could lose sales if customers who want a car on the spot go to competitors’ lots where selections are broader, the WSJ noted.
“What if we cut back, but Chrysler and GM load their lots?,” fretted Ed Jolliffe, a Ford dealer in Michigan, in comments quoted by the WSJ.
“Time is death to a deal,” he cautioned.
“There’s an adage in the car business that the longer you wait after the first customer contact, the more chance you’ll lose them,” he said.
“Customers like immediate satisfaction,” former GM sales chief Don Johnson told the WSJ.
The move is a gamble for Ford, which is in the midst of revamping its European operation and dealing with quality issues, both of which have crimped its profitability compared to General Motors, according to the WSJ.
TRENDPOST: Ford’s new strategy is likely to work in the short term, now that the global chip shortage is forcing customers to wait for new cars anyway.
If the chip shortage drags on for more than a year or two, the industry is more likely to switch to the new strategy as the new normal as a matter of financial efficiency in a world of higher costs and competition from low-priced Asian models.